East to West Capital Flow in Travel & Leisure Sector Gets a New Boost

by Andrey Yakunin on May 8, 2014

In 2007 a ‘bombshell’ hit the well established European tourism market: Alexey Mordashov of Severstal, a Newcastle University MBA alumnus, bucked the trend and invested in a leading European tour operator TUI AG. Over time Mr Mordashov’s G-Groupe became the largest shareholder of the GBP 5.0 billion tourism behemoth. He hasn’t done badly – at least doubling his investment over the last 6 years.

This was 6 years before we launched the Greater Europe Hospitality Fund at VIY Management, during a time when the predominant thinking was that leisure and tourism would continue to witness the overwhelming West –> East capital flows. A lot has changed. Mr Mordashov’s investment no longer appears an outsider, as we see emerging market born brands and hoteliers penetrating the developed markets at an ever-increasing pace.

However, last week’s announcement of another Russian, Vladislav Doronin of Capital Group, assuming the role of CEO of the luxury Aman Resorts from the group’s founder, Indonesian hotelier Adrian Zeka following an estimated USD358m buyout of the network, brings a completely new angle to the current trend. A spokesman for the Russian branch of CBRE (one of the world’s largest commercial real estate and investment firms) argued that such an investment is more about “image” than “business”. By investing into the luxury hotel operating business, however, Mr Doronin is following the footsteps of investors such as Prince Alwaleed bin Talal, who can hardly be described as ‘investment return neutral’. This, in my opinion, reflects a much more interesting trend for the emerging market entrepreneurs who are actually purchasing the established luxury brands, not just the product or the service they provide.

The Russian hotel and tourism industry lacks established domestic and national brands that have a global outreach. Actually, the only company that comes to mind is Intourist which is currently owned by AFK Sistema. This company positions itself in the budget market, although having long ago lost the taste and ambience of the Soviet-period style often associated with this sector of the market. Perhaps, with Mr Doronin behind Aman Resorts, the company will position itself to develop its expansion into CEE (particularly with Aman Sveti Stefan and Amanzoe) so as to establish a significant presence in the FSU. Such a move would certainly give the international operators a run for their money.

Russophiles might pull a face at the sound of such a ‘foreign name’ like Aman Resorts, but we should remember that ‘Wimm Bill Dann‘ also doesn’t sound local or Slavic, and this in no way prevented the company from developing its position to the point where it was acquired by PepsiCo in 2010 in one of the largest FDI deals in Russia (outside of the energy sector).